Request for information relating to residential care contract

Official Information Act 1982
Section 9
Legislation display text:
Official Information Act 1982, s 9(2)(i)
District Health Board
John Belgrave
Case number(s):
Issue date:

Negotiation of age-related residential care contracts not a commercial activity—s 9(2)(i) does not apply

A requester sought information relating to an age-related residential care contract. Northland District Health Board (DHB) withheld the information in reliance on section 9(2)(i) of the OIA (commercial activities), and the requester complained to the Ombudsman.

The Chief Ombudsman noted that a profit motive is a prerequisite for the conduct of a ‘commercial’ activity. He did not accept that the DHB was engaged in commercial activities:

When a DHB enters into a service agreement for the supply of goods and services I do not consider it has the intention of making a profit through that activity. This is despite the fact that the providers of the service (such as age-related residential care) may have such a motive and that those providers’ activities may therefore be regarded as ‘commercial’.

The DHB’s objective by contrast was to secure an acceptable level of care provided at least cost to the tax payer from within an amount allocated by the Government under a parliamentary appropriation.

Under the Crown Entities Act 2004 a DHB is a Crown entity, and within that classification, a statutory entity and Crown agent. Under the New Zealand Public Health and Disability Act 2000, section 22 (Objectives of DHBs) and section 23 (Functions of DHBs) make no mention of a profit objective or a function related to such an objective. Both those Acts require DHBs to operate in a financially responsible manner (section 41 of the NZPHD Act and section 51 of the Crown Entities Act).

However, none of these provisions indicated that DHBs have a profit motive, which could be contrasted with the objectives of the former Crown health enterprises (CHEs), which included being ‘as successful and efficient as comparable businesses in the private sector’ that made ‘profits’ or ‘losses’ rather than ‘surpluses’ or ‘deficits’. By contrast to CHEs, the former hospital and health services were required explicitly to operate on a not-for-profit basis and were declared to be so operating if their annual net income covered all annual costs, including the cost of capital. Section 41(1)(b) of the NZPHD Act similarly provides that DHBs must endeavour to cover their annual costs, including the cost of capital, from net annual income.

The Chief Ombudsman added that just because an organisation (such as a DHB) is non-profit-making, does not mean it cannot engage in commercial activities (eg, op-shops run by the Salvation Army); nor that profit-making organisations cannot engage in non-commercial activities (eg, by making charitable donations). However, the Chief Ombudsman regarded the negotiation of the age-related residential care service agreement as entailing no more than the prudent management of the collective financial position of DHBs rather than the pursuit of a profit on their behalf.

This case note is published under the authority of the Ombudsmen Rules 1989. It sets out an Ombudsman’s view on the facts of a particular case. It should not be taken as establishing any legal precedent that would bind an Ombudsman in future.

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